Q3 2020 Earnings Call
[music].
Ladies and gentlemen, thank you for standing by welcome to the two seats incorporated F. Why 23rd quarter earnings call. At this time, all participants are all not listen only mode. After the speakers presentation. There will be a question answer session to ask a question. During the session you will need to press star one on yours.
Telephone.
Please be advised that today's conference is being recorded if you require any further assistance. Please press star Zero I will now they had a conference over to your speaker today is Mary Jane Raymond Raymond. Thank you. Please go ahead ma'am.
Thank you Kathy and good afternoon, I'm Mary Jane Raymond the Chief Financial Officer here, a two six incorporated welcome to our third quarter earnings call for fiscal year 2020.
With me today on the call is Dr., Chuck Mattera, our Chief Executive Officer, Dr. Giovanni Barbara.
Our chief strategy Officer, and the president of the compound semiconductor segment.
This call is being recorded.
On Monday may 11th 2020.
Our press release 10-Q, and our updated Investor presentation are available on the Investor Relations tab of the website I Dash V. I dotcom.
Just as a reminder, any forward looking statements we may make today during this teleconference or given in the context of today only.
They contain risks factors that are subject to change possibly materially.
They contain risk factors that we do not undertake any obligation to update these statements to reflect events subsequent to today, except as required.
Oh list of our risk factors can be found in our form 10-K.
A new risk factors are rising in the current period can be found in the quarterly form 10-Q.
We will also share some non-GAAP measures in our discussion and materials today.
The reconciliations for these measures.
Our found at the end of each document that uses those measures such as the press release or the investor presentation.
With that let me turn the call over to Dr. Chuck Mattera.
Chuck.
Thank you Mary Jane.
Good afternoon, everyone before I discuss our quarterly performance.
I'd like to spend a couple of minutes discussing the extraordinary circumstances, we find ourselves and as a result of the covert 19 crisis.
And our response here at Tusa.
Let me begin first with the poor for our global health care professionals.
On the front lines of the parent.
Health care professionals in emergency responders around the world.
Faced an unprecedented and unexpected challenges of planning for and addressing the reality of the terrible coal, but this disease has right.
With professionalism hard work here.
Bravery of theirs.
As the contagion spreads in some places and receives with economic recovery beginning in other places.
And does it threatens to reemerge again.
Governments around the world are doing their best to ease the burdens on their healthcare infrastructure their economies there people and business is affected by the crisis.
These government officials have been and remain in an enviable position.
Deciding how to gardasil through these challenging comps.
On behalf of the Twosix family.
I would like to express our sincere thanks thoughts and prayers.
All of the dedicated professionals and emergency healthier and government.
What we're doing their very best to care for protect and guide us through these challenging comps.
My thoughts are also with all of you your families and your communities.
According to Teddy Roosevelt.
And any moment of decision. The best thing you can do is the right thing.
The next best thing is the wrong thing.
And the worsening is nothing.
There are two six our dedicated worldwide workforce with 22500 people have been doing things right and doing the right things.
And demonstrate the advantage that are crudes from a two six culture of preparation alignment and speed of execution around the world that underscores the integration progress that we've made.
Since the very beginning of this crisis, our top three priorities have been clear.
Assuring the safety security as well being of our employees.
Sure in the protection continuity sound operations and value of our business and its opportunity there continue to grow.
And comply fully with the government orders issued in response to covert 19th.
We have executed precisely on our priorities and they're working hard every day to maintain this high Twosix standard of excellence.
Our China teams in collaboration with our global Emergency response and business continuity planning team, we're able to bring all of our China facilities back to normal.
By the middle of March.
It was a remarkable accomplishment for which the whole team deserves great recognition.
Meanwhile, countless other examples of leadership and sacrifice for being staged across the globe now as to six heroes in heroines alike are giving it they're all in their best.
In fact, I'm incredibly hobbled by and deeply thankful for the way that our one to 16 has come together in response to this crisis and I assure you that we remain steadfast in our commitment to our two six mission.
And our impact on the communities in the world.
By providing products that enable all of us to be safer healthier closer and more efficient.
Our mission.
Together with our Twosix vision of a world transformed through innovative materials vital to a better life today and the sustainability of future generations provide clear evidence of how our focus at two six is increasingly relevant to the world.
In addition to meeting Howard talked three priorities, we delivered an extraordinary third quarter.
For Q3, we booked $840 million of orders and ended with a record backlog of 893 million.
We delivered 627 million a revenue.
And our margins on a GAAP and non-GAAP basis were shrunk.
This performance is the result of growing and accelerating demand for our products across key end markets and continued success with our M&A integration efforts that is in many facets at least 12 months ahead of plan.
Our differentiated capabilities extensive product and technology portfolio global scale and diversified footprint allowed us to demonstrate our leadership position, while serving the optical communications market were strong demand led our growth.
As the global leader and optical components modules and sub systems, we experienced growth in demand in both telecom and Datacom.
Driven by Transceivers and opto electronic components.
Wrote a modules and sub systems combined with market share gains and the overall acceleration of legacy as Fiveg optical infrastructure Buildout.
This is a third consecutive quarter of strength we've recorded.
So this trend started pretty code.
The way the World works and delivers vital services, including telemedicine and distance learning is changing rapidly and permanently.
This evolution in human behavior is clearly stressing both the wireline and wireless infrastructure and that is driving cloud operators and service providers to permit to significant infrastructure upgrades.
Our strong bookings growth in this market is evidence of our leadership position and the long term value of the combination of Twosix and Finisar that we envisioned almost three years ago.
Transceiver bookings were more than 40% above expectations and wrote them bookings grew 50% sequentially.
That demand profile contains large orders placed for as long as a year.
And the delivery of those bookings over the years period of time.
Suggested this is the beginning of a long term sustainable demand driven by an accelerated need to deploy new infrastructure worldwide.
Our ramp of new products for Fiveg has accelerated as over 80 carriers re architected networks to handle their 5 billion mobile subscribers, who are quickly migrating to fiveg.
We've been told by one large OEM that U.S. traffic increase in the first week of the nationwide shelter in place orders by more than the increase for the entire prior year.
I firmly believe that the beginning of the large multiyear opportunities to six is unfolding.
In addition to the profound changes we are seeing in the optical communications market Silicon carbide for RF wireless applications grew 75% compared to last year.
Adoption is accelerating as and as an example, we're shipping under our a large agreement announced last quarter at a faster rate than expected driving a 5% growth sequentially.
Our silicon carbide capacity expansion plans remain well on track for power applications. As we believe that the market is still in early innings of a very long game.
For Threed sensing, we had record shipments again from our operations that centered around our war in New Jersey wafer fab.
It is noteworthy that those shipments were even higher than our Q2 shipments, which we think is remarkable at this point in the annual cycle.
As I look ahead is helpful to look back to provide perspective.
We have clearly achieve the vertically integrated technology objectives, we laid out at the time of our earlier acquisitions to address the emerging threed sensing market as we have demonstrated a sustained high degree of production efficiency based on our cumulative experienced gain while producing hunger.
As of millions of devices at very high yields and reliability.
A top integration priority was to leverage our threed sensing experience in our state of the art Sherman, Texas compound semiconductor plant.
I am pleased to announce that due to extraordinary examples of teamwork collaboration and communication and a seven day a week form since January 2nd by our dedicated one to 16.
Began shipping from Sherman, Texas for the bold plan, but I laid out for the team and described during our earnings call in November.
No.
Before I turn it over to Giovanni I'd like to comment on the essential role of our emerging vital life Sciences business.
Reliable diagnostic testing for cold it is based on a preliminary chain reaction or Pcr.
Process to replicate a small amount the DNA or arnie to generate a sample large enough for analysis.
The two six life Sciences business makes many of the key components for this equipment, including thin film optical filters thermo electric thermal cycling engines and related subsystems.
We are proud to be able to support the rapid increase in the world's capacity for Cobra testing to combat this pandemic.
No I'd like to turn it over to July Giovanni.
Thank you talked and good good afternoon. Indeed, the qualification of the Sherman plan was a major milestone for our compound semiconductor segment.
We're pleased to report the first production shipments for PD sensitive applications and expect the ramp to accelerate from this point forward and gain in meaningful show the markets.
We double qualified to be tough so growth in within publication capacity.
Well now will position as the only you as space vertically integrated supplier or big celebrities with three D sensing only six each milestone.
Although.
We had adequate capacity.
He said the majority old we understand the market demand to be.
Our communications Visanet assumed the core though was the ongoing old phones.
In Datacom.
Revenue for our components increased 60% compared to last year's quarter and domain Stadium sequentially.
As we execute on I'll walk you seasonal strategy to penetrate the merchant market. We are well leaders like cop two products. We're pleased to recall that we have received our first production all default indium phosphide components, which we've already begun shipping this quote.
By executing on our strategy, we have the fact that increased our some by about $2 billion and good just began to gain I will show of such a market.
As evidenced by the strength of the demand in the Armful feel needful scalable in new post fight and I see components.
We accelerated the market introduction in qualification of our products, but which I'm pleased to report it's exciting pipeline of designing activities.
Revenue fell transceivers was flat compared to the cardio end declined 9% sequentially.
One other G remains the main see over the market today that puts ending almost 70% of the could be don't bowl a high speeds on c. the market.
As essentially the market leader.
These ease and we continue to be a large portion Obama business as we expect kishi goal being one hundredg. So at least the next five years.
We believe that we will the fastest supply so on the GE datacom transceivers for the industry and as we continue to invest in that technology, we expect to secure a major portion of that market segment as it goes.
The finfet pieces of our telecom revenue Oh load on sub systems and components, which was also strong in the quarter.
Sequentially, we only saw at 10% decline in revenue due to cold it only 50% increasing orders.
Demand was strong across the board still amplifiers like outs, and all enabling components, including positive optics and wavelength selective switches.
In addition, 90 nanometer response, and we will insect is we choose also experienced extremely strong demand for undersea applications.
In fact, as we witness the acceleration of oldest fall by products for Fiveg applications and data center infrastructure.
Most of these manufacturing lines continue to be sold out.
So those will semiconductor capital equipment open all continue to be in high demand.
Moving 12% sequentially.
But even by the global logistics to conduct a market and daunted by called it.
We expect to see the goal to continue over the next two a month as about customers build the next generation Bobs worldwide.
We talk about technologies and products, we are enabling the transformation of the backend of the line of these bugs.
As we also expand problem appeals offering from he will be optics into motion control components for the front end of the line.
Our team keeps innovating in delivering high performance products to this market segment irrespective of cobot.
In aerospace and defense, how long revenue grew 25% year over year.
Well stated sequentially.
Oh downs materials electro optic components and subsystem blocks films combined with semiconductor lasers are essential total growth strategy in our aerospace and defense segments, namely satellites competitive space Hypersonics and directed energy.
It's also worth mentioning that we've got hano to receive the ATM 2020 supplier Excellence Award.
Industrial remained stable at all on a sequential basis.
The multiple key and they've been called US, particularly nasal engines grew 17% sequentially through new laser system built.
The the aftermarket will somehow soft.
We were pleased to see it assumption and Julie's abeles inspite of the incredible impossible Colby on many industries such as automotive.
This is likely due to continued activity in those companies, but can see the essential and continue to open it.
With that limits on the little bit imaging.
Thank you Giovanni and good afternoon.
Since our last call.
We had some very notable achievements just you mentioned five of them.
The strongest order book, we ever achieved.
Only a 6% decline in revenue or about half of the minimum $50 million in revenue, we anticipated for 'cause. It compares to our strong December 31 quarter's revenue.
Excellent shipments from warrant and the beginning of shipments from Sherman.
Non-GAAP gross margin and non-GAAP operating margin at or above two six as standalone margins at the March 31, 2019 quarter, and finally strong liquidity management ending in $746 million available liquidity.
And 36, and a half million dollars positive free cash flow in the quarter.
We really do have a very dedicated team.
During the quarter to total revenue.
$627 million was split.
68% in communications, 11% in industrial 7% in military 6% in consumer.
5% in compound in semiconductor capital equipment.
And the rest is in the other markets.
The margin progress was very good in the quarter. The non-GAAP gross margin was 38.3% advancing 200 basis points and above the two six standalone gross margin of Q3 last year.
Operating margin on a non-GAAP basis was 13.8%.
We had a favorable mix this quarter affecting both margins and that does vary from period to period.
GAAP EPS was six cents and the non-GAAP EPS was 47 cents with the after tax non-GAAP adjustments $38 million in total.
We had 93 million diluted shares in the quarter.
GAAP return on sales was 0.9% and non-GAAP return on sales were 7%.
The return on sales.
It's lower than two six experienced standalone due to the unusual tax effects of purchase accounting in this quarter.
At the segment level.
Adjusted operating margins for 13.4% for photonics and 14.6% for compound semiconductors.
So tonics benefited from operating efficiencies and the richer mix.
Putting.
More than doubling its submarine pump sales again.
This quarter year over year.
Compound semi also benefited from its strong sales of accelerates the qualification of the Sherman, Texas Fab and the commencement of commercial operations in Sherman.
For operating expenses, our Opex. The total was $177 million on a GAAP basis, and a 154 million on a non-GAAP basis compared to 168 million in the second quarter fiscal year 20.
Our focused on Opex has been intensive and will continue and I'll talk more about synergies in a minute.
In our non-GAAP adjustments, you will see a great deal of movement.
This is due to the continuing work towards finalizing our purchase accounting.
Amortization in the quarter was 5.7 million. The result of adjusting to the forward run rate of $20 million of amortization per quarter down from our previous quarterly estimate of $33 million.
We had eight and a half million of onetime depreciation benefit in the GAAP result.
What we excluded from the operating performance as shown in the non-GAAP table.
We expect our run rate depreciation to be about $43 million a quarter on the current fixed asset level.
As compared to 53 million previously.
But this will of course increase with the acquisition of additional fixed assets.
These changes in amortization and depreciation were part of our continuing Mark to report the fixed assets intangibles and deferred income tax liabilities of this NSR acquisition as fair value.
At March 30, Onest, we're about halfway through the one year measurement period that will conclude on September 2030.
2020.
Stock comp was 14.4 million in the quarter and transaction expenses, including severance or 5.9 million.
Our quarter end backlog was a remarkable $893 million consisting of 518 million in photonics.
And 375 million in compound semiconductors.
This compares to last year last quarter's backlog of 681 million for the whole company with 346 million in photonics and 335 million in compound semiconductors. The backlog contains orders that will ship over the next 12 months.
Capital expenditures this quarter were $28 million.
For the combined company for the year, we are expecting capex in the $125 million to $140 million range.
Our operating leaders have done a great job on yields and shipped expansion to allow us to moderate new capital expenditures across the company.
Cash interest expense was $21 million and the and all debt related expenses on the piano were 28 million for the quarter, including the noncash amortization as a convert option and the fees to complete the financing.
Debt decreased $21 million with repayments during the quarter on the revolver and turbulence.
The total debt to total expected debt service payments for the next quarter, our $25 million 19, and cash interest and 6 million in noncash related expenses.
In addition, the required.
Principal repayments will be $17 million in Q4.
Our cash is $388 million availability on our revolver is 358 million, including outstanding letters of credit and our net debt position is 1.9 billion.
Our net debt leverage ratio on the basis of our credit facility is 3.8 times.
The tax expense and tax rate are both rather unusual in this quarter and will be for the rest of this year as we true up purchase accounting for the finished our acquisition, including all of the tax attribute.
For Q4, we expect a tax benefit of approximately 15% to 18% on the quarters income.
And for next year, something more typical in the range of 16% to 19%.
Regarding regarding our work on synergies.
We are tracking well against our target of 150 million an annual cost synergies within three years. After the close of the transaction at this point, we have realized $43 million compared to the expected 35 million halfway through the first year.
Given the intensive focus on Opex, we will likely deliver in the first year at least 50% more than the year, one target of $35 million.
Turning to the outlook.
The revenue for the fourth fiscal quarter ending June Thirtyth 2020.
$650 million to $700 million and the EPS on a non-GAAP basis of 50 to 70 cents.
This is at today's exchange rate at an estimated 12% tax benefit.
The non-GAAP.
Items in Es total 48 cents, including the pretax amount of $16 million and stock compensation 20 million in amortization and 8 million in cost to facilitate the integration.
The share count to be is is 95 million shares.
The actual dollar amount of non-GAAP items, the tax rate and exchange rates are all subject to change.
Before we go to the culinary as a reminder, our answers today may contain forecasts from which our actual results may differ due to a variety of factors, including but not limited to changes in product mix customer orders.
Competition.
Changes in trade and tariff regulations and general economic conditions.
We would also like to ask that each firm.
Limit its questions to one question and one follow up.
Happy you May open the lines for questions.
As a reminder to ask a question press star one on your telephone to withdraw your question press the pound our hash key things stand by while we compatibility roster.
And your first question is from Tom O'malley of Barclays.
Hey, guys. Thanks for taking my question and congratulations on some really strong results, particularly in these times.
I guess my first question was around the really strong backlog you have the quarter clearly log strength coming from photonics within the transceiver business. What gives you. The confidence you know these really strong orders are along with for the remainder of the year and not just a function of people trying to get product now and can you describe the health of your supply chain as well as your customers.
With regard to you know everything that's going on with cobot there. Thank you.
Good afternoon. Thanks for your question, Yes, I'll take it in two parts to the first part of your questions. We have great confidence based on our engagement with our customers.
The order book that we see today.
And then discussions with them about their longer range forecast. We have every reason to believe that it will consent.
No.
We have a whole set of challenges to be able to work through to be able to keep pace with such a large rent.
One of them is in the supply chain.
And as the largest optical communications components subsystem. So far we have a great supply chain management organization and a great set as a strategic suppliers that are doing business with us.
And it's going to be the usual when you're going up a ramp like this it will be some shortages as some rework that used to be done and the hold utilization of our capacity to have the maximum service to our customers the maximum generation or revenue and profit as what folks.
Okay.
Okay and then it's just a follow up congratulations again on getting the Sherman facility up and running in terms of margins you guys had previously talked a bit I think about 18 million dollar headwind to operating margins just based on that facility can you talk about where you know you see margins trending given that.
I've been running clearly it's going to be a big tailwind can you just talked about what what that's going to do for your business here in the second half in particular.
Well first of all we had some very very nice margins in this quarter that on one one quarter of of the strong margins. It's it's tough to extrapolate say, that's where we'll stand but generally speaking when you look at the things that should affect our margins going forward. Obviously next is one of them and that's subject to change but she.
I think from plants that had not been shipping. So in this case Sherman that's a big lift on margins the continued.
Strength in Silicon carbide is helpful as well and then I'd say the next thing that would be in the next that would potentially lift margins though.
It may not quite be with us yet is the pickup in the industrial market given the strong margins in that segment overall generally speaking, though I would say that with respect to our overall photonics business and communications, we have been able to post and we saw this in 2016 and 17 good margins in our business on extremely good utilization when the volume is high.
So I would imagine that probably ask you think about margins last quarter at least the gross margin which was at 36.
It's probably a range somewhere between 3600 39 as we go forward.
Great. Thanks, Congrats again guys.
Thank you.
Your next question is from Mark Miller of the benchmark company.
Thank you for your question.
Regulations on your quarter from let everyone spin staying safe you mentioned you had some market share gains can provide a little color about that.
[noise], especially when you want to take that one.
Sure well I think you know obviously a market share gains are always challenging with respect to Ah being very very precise about them, but as Chuck mentioned when he was asked a question about what makes us confident that the bookings we have our justice stock inventory next quarter I'd say that the engagement that we have with our cost.
Summers in our understanding of increases in share awards.
Give us an indicator that we believe that we are beginning to beginning to gain share in some areas.
Do you mind, you want to add he thinks that for shacks.
Yeah, I can say that the of the growth rate that we have experienced including sensing overtime.
We believe that's a that's due to a show getting goes or that we don't see the market is going to deficit.
So that's another area I would mention.
And the follow up question competitor mentioned last week in a three cents an area. There was some program delays. So I'm just wondering if.
You can comment on that or is not an opportunity or what set a reflection of.
Oh.
Oh, Okay, I'll break that I'm aware of program delays I mean at least the so what we are concerned we have engaged with so wed thingies as planned.
At least they'll do we have no official communications by anybody about anything go being delayed.
Thank you.
The only thing I would say as a general matter the threed sensing market as we've talked about many many times before has been developing more slowly than might have been anticipated when people first started thinking about it.
But beyond that of course Giovanni has hit the nail on the head.
Yeah. Thanks for your question Mark.
Your next question is sometime definitely of D.A. Davidson.
Yes, good afternoon.
Curious when you look at the worn in the Sherman facilities or their products that you are doing the same products from each of those facilities is there overlap or are we done to see how do we view those two different facilities going forward.
Okay, so up the yeah Dalbec schools.
But these are the disallowed AIDS, even if they even though it was we also still make up refiners on governments Tonight.
Audits on 35, but the and.
Also I.
I want to a mine to the show must exceeds the social producing go because I speed Bicoastal datacom.
But with regard to join the speaker. Please sensing we do have a small overlap which will disappear over time.
Okay. That's helpful and Mary Jane when you look at the 45 million and cost synergies to date, you above your expectations, where most of that's coming from as a cogs or opex.
[noise] well first of all we've made great progress on the Cod synergies, which many of you will remember are largely in the supply chain oftentimes so that in terms of.
Work with suppliers that that's moved along quite a pace, having said that it does take time to materialize into the pan out on so notwithstanding some very excellent work there that's probably less what's affecting the PNM and it's more in Opex right now.
Obviously some of it has been in.
Reduction of staff and shuts new organization as well as just looking at more efficient ways to do things helped along here a little bit by even rethinking what we might have thought as synergy targets based on how we've all learned to work pursuant to co that so I'd say at this point in terms of realized synergies there probably.
Lee.
Our absolutely some in the Cogs, but it's probably more in the Opex.
Okay, and then your long term view that 150 million same percentage split between Cogs and Opex is you had before or has that changed.
Yeah, I think for I think for now yes, I think obviously as I just said, it's so interesting to have all been forced almost to learn to work a different way that may change what we elect to do last time goes on but.
We have a lease net it never met a synergy we didnt want to take so well keep you abreast of what that's what is overtime.
Okay. Thanks for your time shore.
Your next question is from Jim Ricchiuti of Needham and company.
Hi, Thank you just a couple of questions on the industrial business I was struck by the comment if I heard it correctly that you saw good growth in new industrial laser deployments, but it sounds like the aftermarket was weaker so it seems like that suggest lower utilization rates I'm trying to square that.
Okay, I'll take since I've heard that box of.
Jim I. So thanks for the question so.
The.
Did the same primarily comes in China. So when you say you legal bills were promoted a thing into China.
Well, we sell optics and lays a bombs.
You know she blazers and all kind of other products.
And do hub. Obviously these are new product so down mainly pulled you leaves a bit. So clearly it's about you lose a builds on data and the aftermarket.
<unk> by the was too high mildly booming needed by seal polices.
We see a we as we have experienced a decline.
Over the past a couple of mums, which whose nobody supervise I guess because probably as you can imagine leasing composition is lower.
Equal some of these factories and so that will utilize laser so the two kind of balance each other little bit, but Ah you know again, some problems is going to new leases, there's no doubt about it and the public they go even existing leases deployed off the market had weeklong, but the new Paul does definitely for new listings.
Got it you answer that question. The second question with respect to a we've been hearing anecdotally of some disruption in the of the Malaysian electronics supply chain I'm wondering just given the fact that you have a fairly large facility. There have you seen any impact on your operator.
Patients there or are you deemed and essential suppliers have marketing and have been largely unaffected.
Largely unaffected Jim.
Okay, largely but on effective.
We that the team there in Malaysia also have done an extraordinary John.
So we are a full speed ahead.
Got it thanks, a lot congrats on a quarter.
Thank you Jim.
Your next question is from Dave Kang of B. Riley FBR.
[laughter]. Thank you. Good afternoon. My first question is regarding I Sherman qualification can you tell us if that's a with a north American customer.
A big news Giovanni here I think Oh, we have a number of customers in desktop so long ago specify which ones we would qualify but these are large cap.
Awesome, probably the largest.
Got it and then.
Regarding a fiscal fourth quarter revenue growth or can you just go over some of the assumptions between calm industrial that threed, yes, and within calm maybe if you can break it out between telco versus a datacom. Thank you well.
So we are actually not not going to do the guidance by end market I would say if you just think about what we have here in the third quarter given the strength that we saw in communications from a bookings point of view and I think typically what we see in.
Communications infrastructure, a when that market is rising it does tend to rise.
Without a ton of seasonality. So it's probably reasonable you would expect to see growth there.
With respect to again, what has been a typical pattern to fourq a has not actually historically been up Sig market on the consumer.
That could change, we'll see and then I think the rest of its just really depends on kind of how people see seasonality and how much there they may be in a position to recover from any Jimmy addition of activity. They saw on the third quarter Ah, but generally speaking given that we saw some nice.
Bookings largely across the board I'd say it really comes down to what individual customers think they're prepared still unable to do as they begin to emerge from a co the to address demand there say it.
Your next question is some policy of a sign of Cowen.
Good good evening.
Ladies and gentlemen, George Roeth for you for Billboard.
I apologize I know you spoke book the gives and what I'm, hoping that give us the organic growth.
Growth by the Looky, Oh throughput from Chris or pro Formas, if they were together a year ago old for with Joe just look apples to apples.
To sits as historical business and obviously over periods of the Brookdale is data common told called whatever growth that will look like.
On an organic business in the quarter before it can be AFFO basis.
So I actually missed the first couple of words, you are asking us hearing split the growth between organic.
Well in the <unk>.
I'm trying to look good on an apples to apples business. So whether whether you look to combine going to store business or include such as if there were combined a year ago look at the growth for data com principally the growth for telecom oral trial, which was <unk> five so close loop since its I assume you cannot wait out to six and stuff.
Telecom from the telecom to suffer the store. So we looked up the growth I don't know if you looked at it this way, but looking at the growth is the two colors were combined will grow to.
For telecom will growth have been for Delta.
Yeah got it okay. So first of all in the 10-Q on node three is the pro forma footnotes. So you guys can all see that and because you have oh.
Q2 last quarter, there, it's a little bit easy for you to Bakken, there's just a little bit I'm asking you to do but net net on a pro forma basis sequentially.
The combined communications business was down 8%.
I appreciate the from the merger, perhaps a breakthrough for but I'm, hoping that you could give us.
Datacomm separately from telecom, what the year over year growth would there would have been.
So, let's just two year every year for the combined this except for the combined business.
Pro forma it would be about 12, I don't know that we can do the split between Datacom and telecom.
Telecom.
I'll, let me take a look at say, but.
Should I already talked about some of the some of the growth in components, most of which would be.
Organic right. So he took the growth and components that he talked about in backed that out that would probably.
That that probably get you to a good number a reasonably good number on what was organic but at this point I'm not I'm not actually in a position tell you that.
Well, that's something that is let me as well.
Let me ask a follow up which towards goes and cause.
If we look at the man versus yes watching constraints.
Versus the supply chain impact, but clearly the qualitative two quick requirements or is that the man is very strong pretty much across the board I'm, hoping we could get some more in sort of that issue in terms of how much the supply chain to deal with that supports your limitations almost the ticking away from both the quarter, you're just report or more importantly, the quarter looking forward.
Or how much is that impacting your ability to recognize the demand that is out there.
You know if we'd just like little demand. It sounds like is very healthy, but I want to confirm that.
Okay, Yeah for looks as though it was destroyed or good afternoon Paul.
Mary Jane out Oh, I'll take it off.
With regards to Q3, if I understand your question as to what extent any supply chain shortages impacted our ability to deliver in Q3 was that your question Paul.
Correct and more importantly, what what's it going to impact in Q4 sure. Okay. Okay. So yeah, I would say again I I've I want to [noise].
Really acknowledge our supply chain global supply chain organization, they've done a fantastic chart.
They were able to along with our strategic suppliers, which I also greatly appreciate.
They were able to women and to a very small number.
Low single digit millions of dollars Cogs revenue, but we were not able to fulfill.
Because of the supply chain issues.
And also our customers has been fantastic with us working through the constraints with us so that we can maximize the utilization of our assets.
And that maximize the benefit for our customers as well.
In Q on Q4, Paul [noise].
We're half were halfway through Q4.
And based on our our shipments in April.
And the overall.
Temple.
Through our global.
Global factories right up until last night.
We we always have a chance that we may have some some.
Pick up and we May blow a tire I guess based on the supply chain issue, but at the moment.
We're staying focused on being able to deliver.
Within the guidance that we announced Tonight.
And that guidance does take into account some.
Lets call supply chain.
Uncertainties.
Okay.
Okay I appreciate that thank you.
Welcome.
And your next question is on me some Musharraf Morgan Stanley.
Great. Thanks, guys.
You know maybe just one last question on that you know just given supply chain constraints for others around the state's understanding you're not seeing some of the the same issues, but do you think somebody or strength in telecom and from share gains from others or you know you just kind of expect that you did.
This is what true demand what a pen.
And then maybe second for Mary Jane just diving into that gross margin outlets have you know understanding you're ahead of synergy targets, but just any sort of split between.
You know how much of the uplift either quarter on quarter year for I guess quarter on quarter always do the synergy is mix and then just getting facility is up or just any ballpark there would be helpful. Thanks.
Okay. So starting with a last question first I'd say I'm not sure I can give us your hyperbole precisely, but I would say generally speaking.
We're probably seeing.
Mix as the main driver of the gross margins that this the supply chain synergies are absolutely beginning to come in but they do take a while to get as I said through the piano I would also say that one of the other things that's probably benefiting too is the.
Which would be permanent is that how we restart about the ongoing depreciation.
From a purchase accounting for a deal in the margin, which as we said, it's probably a drop on an ongoing basis in the neighborhood of about $10 million.
So that's the input with respect to.
Uh huh.
<unk> margin with respect to the share gain shall I give that to you Chuck.
Absolutely. Thank you Mary Jane Good afternoon, meta I I would say.
But maybe in in a few categories, one and our wrote them one quarter components.
I believe that the strength of our customers those.
And the strength of our our portfolio.
Have a contributor to or what you're saying.
And and Telecom also our undersea qualified portfolio of of both comps and the receivers and passive components, including wavelength selective switches as has a really.
Really shines and in Q3.
So that's the second one.
And Oh, our transceiver.
We are transceiver team is especially as it relates to our order book is really coming on strong book and telecom and Datacom.
That's helpful. Congrats guys.
Thank you.
Your next question is from Simon Leopold of Raymond James.
Thanks for taking the questions I want to see if you could talk a little bit about your your expectations for how Youre. Your three D sensing business might trend through the year in that I'm thinking about normal seasonality, if such a thing where do exist as down in June strong in September and then down in December but this.
Here seems to be clearly very different than you are ramping the production of Sherman. So I'm wondering whether or not you expect up in June up in September up again in December or whether there's some seasonal aspect we should be taking into account. Thank you.
Okay say Simon Thanks for the question is still on it.
[noise] first of all you'll probably find us do change.
So what we expect for me you just be disciplined and what's going to happen of course.
At this point, we don't anticipate.
Anything different than the past or the let's say the policy is sort of foster arms.
Our our focus is there and then gaining share.
I will focus these two executing any show and go through the the volumes that the the customers are fully constant to us.
So you know it if it made it isn't really shocked.
Kind of view of the market in my opinion on looking at one moms with Q moms, so well here for the longer and I'm going to be a the as the leader in this market and we'll take some time to get the but Oh, so far we're moving one directional.
And just one follow up in terms of the opportunity if you've talked about from Fiveg, particularly looking at the optics not not the silicon carbide portion, but the the optics used in front haul backhaul it sounds like that businesses is growing and.
Gaining traction, but faster than you expected could we get a an update on how you see a the contributions evolving over the next let's say one year or so.
Oh, well, let me start Simons.
When you I'm not sure exactly what do you said about our expectations for maybe faster than what we thought.
We've been in this we've we've been in a strong demand for.
Huh.
So far g. for optics for micro optics in passive components.
Well before.
The acquisition as soon as far as.
It wasn't clear about the capacity investments and expansion we've made.
No.
We have we have that they have a wider portfolio and over the last.
Six to six to 12 months.
In addition to our past component portfolio now is a full line supplier.
We you are soon.
The the turn on since the early part of this calendar year, and a step up and and demand around the world for Fiveg.
We think this just again.
Thanks for taking the questions.
Your next question is from Sidney Ho of Deutsche Bank.
Great. Thanks.
Hi, Congrats on the quarter end and outlook as well just a follow up on the last question on the five she obviously you guys have done well there, but we've been hearing some mixed signals in terms of <unk>, who is ramping who's not ramping curious if the strength that you're seeing it slowed broad base or is this more specifics in certain regions and how does that.
Compared to your expectations, maybe like a quarter ago.
I would say, it's a a global effect.
And for sure but be some some parts of the the world and some suppliers had been out in front.
But this is not not not the confined to one customer in one region. So.
Okay.
Okay that Ah that's the test that's helpful.
For my follow up questions regarding the department of Commerce rules I don't know if you have a chance to look at that just want to hear your thoughts to see how that may impact to six and maybe as usual I ask about silicon carbide a lot of the end demand will likely end up in China electric vehicle or five TV station, but is there a potential military use angles.
Yes, well would love to hear your thoughts on that thank you.
So I want to pick up.
Well I wasn't sure about the question about admitted to the on Silicon carbide Buddy There's no doubt that you know multi China is a large market for us.
So far we have no indeed being affected fully number reasons and you know combinational ball location, our manufacturing and Oh looking from all of you know general equal stocks R&D teams and soap boats. So.
The hot at this point to Oh, you know see what's going to happen in the near future.
We do plan to have some clauses, saying Oh CMO carbide in China as they will believe they will Oh Paulo.
Our costs as well as a oh, while the entry into the you're trying to market with a block from but.
You probably know, we we must be able to do anything other than that outside the United States. So we'll be limited.
Pencil to go to remain in the United States. So if you can repeat the question student about immediately I wasn't sure the Bobby the relationship between single combined immediately.
Yeah. So the question on filling carbide is obviously some of this could be you said military even though the take the customers you are dealing with right now a topic all using an electric vehicles for Oh, how base stations, but they said that Neil rules. It's all based on the potential military use off that particular product. So that's how come in and.
See if they are you concerned about something products, you may not able to sell to China, because all of this potential military use.
Yeah, well, that's a that's a general dual use.
You know with.
Told me technologies.
You measure Superbike, although the main show our energy loses.
You know Oh, and if you lose a weapon is nothing more than a bigger is low circles Walt.
Industrialism.
And so are these a challenge that we face both I think a we are well compliance team, it's helping us navigating through a world we need to do to follow the law and and I seem to be U.S. Yoo markets. So those application, it's going to be very interesting fact, I'll walk you through our own.
You know guzzle nitride, you'll see won't go by though.
Products that will look we may two in the in collaboration with a partner in New Jersey could have the potential for the middle market in the U.S. So of course, we won't be able to sell them outside the United States. So, but yes, there will be a limit, but what we can do with the functions. We had no doubt about it gets this truthfully.
But.
These into United States.
Great. Thank you.
Thank you city.
Thank you Sir.
Your next question is from summit technology of JP Morgan.
Hi, guys. This is actually go kind also on for Sonic category. My first question is regarding your realized synergies obviously about the 35 million target that you guys [noise].
Put out there for the first here I guess I just wanted to get a clarification on the whether those incremental synergies would you bucket those as pulling from here two or three four are those incremental to your target [noise].
It's probably a combination I'd say.
[noise] [noise] and then I guess just on a follow up there what as where you stand today are you comfortable with 150 million target or would you are you guys more comfortable raising that target in the future. I guess my question is like if you guys are seeing more today, what's holding you back from raising that target [noise].
So we're comfortable with 150 I think given that.
You know some of the synergies are a challenging to get and frankly, where two and a half years to go I don't think I'd move the target now anyway.
Got it and if I could just one last thing on the synergy I I obviously.
Topline Canadian bad haven't necessarily been quantified I just curious on the progress that you made or anything like what new avenues for you guys are exploring relative to the topline synergies and if there's been any progress made on [noise].
I think you've already already summarize the especially in the name one that we had talked about since the time at the acquisition, which is the beginning of the sound like.
Indium phosphide components and as he reported during his remarks, we had actually begun on shifting that so I think it's early to put up you know a target dollar value on that.
But that is a big deal or to have got qualified and start shipping the indium phosphide components as individual components. This early in the acquisition combination that's what Chuck mentioned about some aspects are you know as much as 12 months ahead.
Got it thanks, guys and great results well thank you.
Your next question is from Christopher Rolland enough, that's gonna International growth.
Hi, Chris Thanks, Hi, how are you. Thank you for the question and congrats on the result from congrats on the Sherman qualification.
And regarding Sherman, perhaps you guys can talk about how you view the Tam for the three D sensing market and what kind of share you guys. Thank you can capture exiting this year and perhaps three years down the road. Thanks.
I don't know that we wouldn't necessarily predict share that far out, but I think pretty much. What we've said fairly consistently is that we believe that the Tam from a consumer points video. It's worth three D. Sensing isn't the neighborhood of a billion dollars and originally when we.
Talked about that back in 2017, we expected that to be materializing into 2020 year.
And thus our comments all along that the market has been developing more slowly than we expected, but we certainly would expect to at least half our fair share of that market.
Do you mind, you want to add anything okay.
It didn't sound like you had some really nice booking trends here. So I guess I've two questions first was there anything about the linearity of the bookings did it accelerate into April and May or was it just consistently strong.
Out there over time is what were there any irregularities. Thanks I.
I wouldn't say so we never get from you guys like the question of whether or not these bookings were all about restocking inventory. So we spent a good amount of time looking at the timing of the bookings, which does tell us something about.
What's what they're likely for obviously when you're component manufacturer to some extent your your knowledge at where Youre materials are going is a perfect. So generally speaking I would say it looked like what would normally be an acceleration for a market that was beginning to ride and I would also say that or at least from what we can see.
The April bookings are not walking back the trend I don't know that we're going to has $800 million bookings in the 12 630 quarter, but I would say that we didn't see a reversal significant de bookings any of that sort of stuff that would cause us to be.
Ah spotting strange things in the bookings, we just reported.
Great Thank emerging sure.
And your final question is from GE did dorsheimer of Canaccord Genuity.
Hey, Jeff.
Hi, Thanks for taking my questions superb execution really or something to be proud of.
I guess my first question on the Silicon carbide I'm, just curious that landscape seems to have shifted a bit with dow's sale to SK curious what your thoughts about the shifting landscape a there and then I have a follow up.
Shibani would you like to.
Sure sure Yeah.
Yeah, I'll, let Chuck that you saw they'll finish what about that.
Okay.
Good afternoon, Jeff Thanks for joining us today.
The for us the the on the the change in ownership.
Doesn't add a a dynamic to the marketplace in the short term, but it could in the long term.
And the right. We believe there's this marketplace like many many people believe in I think you too.
In this century.
The electrification.
There's going to be a main driver of sustainability for the world.
And in the short term, there's like white likely to be in my and and and in our model one am I thinking well likely to be some.
Some modest.
Gains and possibly.
After the market move sideways automotive companies.
Rethink their priorities in the short term.
But overall, our sense from talking with customers is that their interest and their activity that's focused on.
Silicon carbide based power electronics.
It's not waiver.
So the up for us.
Yeah, we were a great competitor and we love competition.
And we think it'll be healthy for the market place.
And it will only.
End up having to these the overall effective driving and our estimate.
Greater than me.
Okay.
That's helpful. Thank you.
With respect to the silicon carbide, just staying on that subject.
Sound as if the demand in near term.
Well, let me ask.
How is the demand split between application for RF versus Oh electrification or in further type applications and a in the east.
Right. So we yeah. This is there's giovanna here that so we had a like him or last quarter and with we have experienced a decline in the.
You can only be conducting saab seats in the following the call next Saabs Subsys will follow that phones.
And we were able to Oh, let's will face I'll watch closely actors to go do you see me, so leaving substrates and we've seen that to continue.
Although just just oh leasing quarter, so that the the up even if at some points into future we know that the.
The the public Dawn is the mines will be much larger than data, it's there's not the case to that.
And as we said doing just kick in the script that though the.
The acceleration of Fiveg.
Oh, I will say Woody worldwide isn't really is not just about China, but also.
Although although oh yens other carriers worldwide 10, Oh, you know continues to get ready.
This fiveg deployments, we have seen an increase in the audit which has been when the time to very well because you may recall, you were sold out for civil quotas and potential capacity. So did decline and follow the call next I mean was my welcome for the lease was on perfectly to enable lost.
We'll go the honest business. So all in all that we'd be known Boston, it's about a the or the timing. So we were able to refocus on you know always improvement and you know all the other things that we need tools that we need to do to be <unk> to continue to be ahead of the competition.
Even if we come up as you said, maybe some color here in the future.
Great. Thank you.
Sure I think given time, we should probably finish the Q1 I at this point and I'd like to just for a minute turned the Mike back to Chuck.
Okay. Thanks, again, Mary Jane and Thanks again, everyone for joining us overall for the quarter was a tremendous performance. During this call that outbreak I'm proud of our worldwide leaders, who put safety first collaborated early on to provide a business continuity and emergency management plan, both internally and with local officials and who.
You are carefully timing to the needs of our employees.
Finally, I would also like to thank the growing list of our customers value, our technology scale and differentiation as well as all of our other business partners investors and especially our employees for enthusiastically aligning around our strategy as we continue the hard work it's always.
Associated with being a global market leader.
We will continue to position to search for the tremendous growth opportunities ahead for twosix, while driving long term shareholder value and while serving a vital role in the world.
We look forward to updating you on August and this ends our call today Goodnight anymore.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Oh.
[music].